Geopolitics Could Further Complicate the Fed’s Path Ahead
Further Turmoil in the Middle East Could Roil Oil Markets—And, In Turn, US Inflation
9 minutes ago
Recent tensions in the Middle East may not create a big impact for the U.S. economy, analysts said, but that could change if things escalate and drive up oil prices.
After Israel and Iran recently exchanged drone and missile strikes, the recent standoff may come to a close, Wells Fargo said in a commentary. Forecasters at the bank wrote the conflict was likely to remain “contained” and have minimal impact on the U.S. economy.
However, if oil prices tick up in response, it could have knock-on effect on inflation.
Oxford Economics’ Ryan Sweet calculated that the Consumer Price Index measure of inflation would rise by a half-percentage-point if oil prices were to jump to $100 per barrel. Meanwhile, $120 per barrel would push it higher by more than one percentage point, Sweet found.
Inflation has already been more stubborn than anticipated this year, and further growth could make it even harder for the Federal Reserve to cut interest rates soon. The policymakers have kept their influential fed funds rate at a more than two decades high in hopes of containing inflation, making borrowing costs on mortgages, credit cards and other loans expensive.
Read more about the economic impacts of Israel and Iran tensions here.
-Terry Lane
Manufacturing, Services PMI Drop Shows Business Activity Slowing
4 hr 6 min ago
Business activity slowed in April, with both the services and manufacturing sectors underperforming expectations, according to Purchasing Manager Index (PMI) readings issued by S&P Global Market Intelligence.
The services PMI dropped to 50.9 in April while the manufacturing PMI slipped a full point to 49.9. Economists surveyed by the Wall Street Journal and Dow Jones Newswire expected both indexes to improve to 52.0.
“The U.S. economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April,” said Chris Wiliamson, the chief business economist at S&P Global Market Intelligence.
The muted readings come after last month’s services and manufacturing PMI readings also indicated that growth was slowing.
New orders declined for the first time in six months, the report showed, with employers responding by scaling back employment for the first time in nearly four years. Additionally, business confidence was at its lowest point since November.
The slower production levels also helped put downward pressure on prices, with overall incoming and output prices increasing at lower levels, though manufacturers reported that their input costs were at a one-year high. Williamson noted the higher manufacturing costs could indicate new inflationary pressures, in line with reports showing prices have edged upward in 2024 after slowing significantly last year.
“Notably, the drivers of inflation have changed. Manufacturing has now registered the steeper rate of price increases in three of the past four months, with factory cost pressures intensifying in April amid higher raw material and fuel prices, contrasting with the wage-related services-led price pressures seen throughout much of 2023,” he wrote.
-Terry Lane
New Home Sales Jumped 8.8% In March
4 hr 42 min ago
With used homes hard to come by, people looking for a place to live are buying more newly built ones.
Sales of newly built homes rose 8.8% in March from February the Census Bureau said Tuesday. If houses sold at the same pace they did in March, 693,000 would be sold over the course of the year, the fastest pace since September according to seasonally-adjusted data. Sales were up 8.3% over the last 12 months.
The brisk pace of new home sales suggests that homebuilders may be justified in their growing confidence in their corner of the housing market, according to recent surveys. That’s a sharp contrast to sales of existing homes, which have been languishing because so few homeowners are willing to sell and abandon their low fixed mortgage rates for today’s rates near two-decade highs.
While high mortgage rates have made buying a house unaffordable for many first-time buyers, builders have found ways to sweeten the pot.
“The willingness of the major homebuilders to utilize incentives such as price reductions, mortgage rate buy-downs and paying buyers closings costs continue to support a healthy pace of new home sales,” Gregg Logan, managing director of RCLCO Real Estate Consulting, wrote in a commentary.
To be sure, Tuesday’s data should be taken with a grain of salt. The bureau’s figures are prone to large swings up and down from month to month, and come with a large margin of error—March’s sales figures could be 17.2% higher or lower than reported, according to the bureau.
If the data turns out to be accurate, increased homebuilding could help relieve a longstanding housing shortage that’s driving up prices and hurting the U.S. economy overall.
“The jump in sales is welcome, but the country remains more than 4 million homes below what’s needed for the number of American families today,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a commentary. “We’ll need to see lower mortgage rates to spur much more building to make up that deficit.”
